[Nimit Rajesh Goyal is a penultimate year student at the National Law University, Delhi. The author thanks Distinguished Prof. (Dr.) M.S. Sahoo and Prof. (Dr.) Ritu Gupta at the National Law University, Delhi for their insight and guidance]
Private enforcement of competition law may be defined as enforcement by means of legal action brought about by victims of anti-competitive conduct before a court. This encompasses both actions that succeed the finding of a competition law infringement by the concerned competition authority (‘follow-on actions’) as well as actions that do not (‘stand-alone actions’). In the case of the latter, the factual finding of an infringement is ordinarily made by the adjudicatory body in question based on the pleadings and evidence rendered as part of the suit itself.
In India, follow-on actions for compensation are allowed under section 53N of the Competition Act, 2002 (the ‘Act’). However, to this date, not one compensation application appears to have been decided by the National Company Law Appellate Tribunal (the ‘NCLAT’) or its predecessor, the Competition Appellate Tribunal. Furthermore, no provision exists to allow for stand-alone actions for private enforcement of competition law, with section 61 of the Act explicitly ousting the jurisdiction of civil courts to entertain matters which the Competition Commission of India (the ‘CCI’) and the NCLAT are empowered to decide.
In light of the above, this post seeks to argue that private enforcement of competition law in India is not only promising but is also an idea long overdue. In particular, it shall argue that (i) private enforcement of competition law is in line with the stated objectives of the Act, (ii) its expansion shall allow for better application of competition law provisions within the country, and (iii) the present legal regime is inadequate to deal with the complexities arising out of private enforcement. Appropriate amendments to expand the domain of private enforcement shall be discussed towards the end of this post.
The Desirability of Private Enforcement of Competition Law in India
Section 18 of the Act states that it shall be the duty of the CCI to protect the interests of consumers and ensure freedom of trade carried on by other market participants. Yet, upon reading section 27 of the Act, one would find that the CCI itself has no explicit compensatory powers to remedy the loss suffered by consumers, or indeed any other market participant. By their very nature, the directions that the CCI passes under section 27 of the Act are forward-looking and do not remedy the harm already caused as a result of proscribed anticompetitive conduct. Thus, follow-on actions for compensation become crucial in realizing the objectives of the Act. This is because they deter not only the offending parties in a given case but also such market participants who would otherwise have the proclivity to violate competition law provisions. Whilst deterrence is often associated with punitive damages such as those imposed upon violators of competition law in the United States (‘US’) in the form of treble damages, even compensatory justice is likely to result in a deterrence of future infringements and instill greater compliance with competition law provisions. This is as stated by the European Commission in its ‘White Paper on Damages actions for breach of the EC antitrust rules’ and confirmed by the European Court of Justice in paragraph 45 of its decision in Vantaan kapunki v Skanska Industrial Solutions Oy. The combined effect of compensatory justice, along with the deterrence of future violations of competition law shall best serve to protect the interests of consumers, as also freedom of trade carried on by other market participants.
The justification to allow stand-alone actions for private enforcement of competition law may be found in the policy rationale that the CCI ought only to take up such cases of alleged competition infringements where public interest is substantially at stake, owing to the limited resources at its disposal. The European Commission has a similar policy of only investigating such cases where Community interest is found to be present, a stance which has found favour with the European General Court as well, so long as the reasoning behind such a decision is substantiated in a given case. It is to be noted that according to section 26(1) of the Act, the CCI is presently bound to refer to the Director General all such matters where it is of the opinion that a prima facie case had been made out, regardless of the significance of such alleged competition infringement, due to the usage of the term ‘shall’ instead of ‘may’. On the contrary, the Central Consumer Protection Authority retains with it the discretion to choose cases where a preliminary inquiry may be conducted to ascertain alleged violations of consumer law, taking into account the prejudice to public interest involved, should such violations be established.
It is submitted that the CCI should be afforded discretion similar to the Central Consumer Protection Authority, allowing it to focus upon the most egregious violations of competition law whilst leaving other matters up for litigation by private parties. The European Commission, whilst deciding upon the Community interest involved in a certain case, also considers the appropriateness of litigation before national courts in reaching its decision, thereby acknowledging the desirability of stand-alone actions for private enforcement of competition law over public enforcement in certain circumstances.
Private Enforcement and Procedural Inadequacies in the Present Legal Regime
Having established the desirability of private enforcement of competition law in India, it shall be apposite to examine the existing procedural inadequacies in this regard. Whereas the procedural framework for stand-alone actions would understandably have to be developed from scratch, the procedure (or lack thereof) relating to follow-on actions also leaves much to be desired.
Firstly, upon a purely textual reading of section 53N, it would appear that compensation claims may not be filed after the determination of an appeal by the Supreme Court of India. This lacuna in drafting was observed by the Competition Law Review Committee (the ‘CLRC’), and also by Excel Corp Care Limited, which argued that the decisions of the CCI and the NCLAT had merged into the decision of the Supreme Court, thereby disentitling the Food Corporation of India in that case from receiving any compensation. Since both the CCI and the NCLAT, in that case, had, however, found Excel Corp Care Limited to have violated competition law provisions, this argument was unsuccessful since the cause of action was held to have arisen from their decision, as opposed to that of the Supreme Court. On appeal now (UPL Limited v Food Corporation of India Civil Appeal No 3432/2020), it would be interesting to see how the Supreme Court interprets section 53N of the Act. In particular, it would be interesting to see whether the Court comments, by way of an obiter dictum, on such situations wherein a finding of no violation of competition law provisions by the CCI and the NCLAT are reversed by the Supreme Court itself.
Secondly, the role of passing-on of overcharges is unclear under section 53N of the Act. This is significant inasmuch as the doctrine of passing-on shall have a bearing both on the computation of compensation payable to direct customers, as well as the standing of indirect customers to prefer an application under the section.
Thirdly, it is unclear what relief, if any, would be available to parties that have made disclosures and have cooperated with the CCI under section 46 of the Act in exchange for lesser penalty, should an application for compensation be preferred against them under section 53N of the Act. The Antitrust Division of the United States Department of Justice, for instance, has in the past filed an amicus brief before the Supreme Court of the United States arguing that foreign firms should not be allowed to sue for treble damages should they be victims of price-fixing, on grounds that this would weaken their amnesty programme. Additionally, the Antitrust Division remains an ardent supporter of the statutory amendment limiting the damages that can be recovered from firms that had entered into agreements in restraint of trade and have since become part of its leniency programme. This amendment has limited the liability of such firms by doing away with joint and several liability and restricting victims of such anticompetitive conduct to ‘actual’ instead of ‘treble’ damages. The ambiguous relationship between sections 46 and 53N of the Act is made more significant in light of the CLRC’s proposal to allow for settlements and commitments under the Act, as noted by Dr. Aditya Bhattacharjea in his observations annexed to the committee’s report.
Suggested Amendments and Final Remarks
The above section has highlighted just some of the many inadequacies that have likely stymied the growth of follow-on actions for damages in India. It is submitted that whilst an exposition of all possible amendments required to facilitate private enforcement of competition law in India is beyond the scope of this post, especially since, as abovementioned, the framework for stand-alone actions would essentially have to be developed from scratch, some of the key possible amendments that may be incorporated are discussed below.
First, it is necessary to suitably amend the language of section 53N of the Act to allow compensation claims to be filed based on the determination of an appeal by the Supreme Court, in line with the recommendations of the CLRC.
Second, an amended regime may explicitly recognise passing-on of overcharges under section 53N of the Act and any other equivalent provision enacted for stand-alone actions, which would be in line with the CCI’s interest in protecting consumers as laid down in section 18 of the Act, as also effectuate the purpose behind allowing for representative suits within the ambit of Section 53N. It is submitted that India adopt a presumption of passing-on of overcharges to indirect customers in cases where the product that was the subject of the overcharge was purchased by them, or another product that contained or was derived from such product was purchased by them, in line with the position in this regard within the European Union. This was found suitable given that the challenges involved in bringing about requisite evidence on the part of indirect customers for the grant of compensation are more significant when compared to the prospect of the defendant facing multiple damages.
Third, in cases where a cartel participant has made disclosures and is cooperating with the CCI in exchange for lesser penalty as provided under section 46 of the Act, any compensation payable by it under section 53N of the Act could be made recoverable up to a certain percentage from other members of the cartel, thereby further incentivising parties to make disclosures in exchange for leniency. Should settlements and commitments be introduced into the Act, parties entering into the same could either be made exempt from any application for compensation, or their total liability capped, depending on the facts of the case.
Fourth, in stand-alone actions, the earmarked forum could call upon the CCI to submit its views as an amicus, as is the case in the European Union. This could be done both at the stage of establishing an abuse, as well as at the stage of determining the relief, so as to ensure that the technical expertise of the CCI as a regulator can be duly considered, especially when complex economic assessments are to be made as to the nature of the injunctive relief apposite in a certain case. Experts in economics can be appointed as technical members of the NCLAT, for which an amendment would have to be made to section 411(3) of the Companies Act, 2013, as also such forum before which stand-alone actions would have to be instituted.
It is submitted that incorporating the above amendments along with designing the appropriate framework to facilitate private enforcement of competition law more generally would help bring the law in line with competition regimes across the globe, which are increasingly moving towards this direction, further reinforcing the central argument of this post that private enforcement of competition law in India is not only promising but is also an idea long overdue.
– Nimit Rajesh Goyal